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Should we put a carbon tax on China?
Paul Krugman seems to say yes:
As the United States and other advanced countries finally move to confront climate change, they will also be morally empowered to confront those nations that refuse to act. Sooner than most people think, countries that refuse to limit their greenhouse gas emissions will face sanctions, probably in the form of taxes on their exports. They will complain bitterly that this is protectionism, but so what? Globalization doesn’t do much good if the globe itself becomes unlivable.
I cannot agree with what I think is his recommendation. I am not a global warming denialist but:
1. The Chinese are often paranoid (arguably for good reason) and we will get further being nice to them than by being confrontational. Krugman himself admits that they don't seem themselves as culpable on this issue. Chinese citizens wanting clean air at home are possibly our biggest ally so let's not alienate them.
2. Last I checked China was funding a big chunk of our government's debt. Confronting them would have to be bundled with a regime of extreme fiscal conservatism and unilateral foreign policy.
3. It can be very hard to identify and isolate the energy inputs into an exported product, especially if the host government is uncooperative and a lot of money is at stake.
4. We cannot credibly penalize the Chinese until we solve our own pollution problem. Even under Obama's proposed policies, in their purer forms, that is at best decades away. In the meantime, what is it that is really being advocated? Non-credible threats?
5. Once the political process gets its hand on such tariffs they will be directed against, say, Chinese cars, including maybe relatively clean ones, rather than the dirtiest Chinese exports.
6. Last I checked there was something called the United Nations and China sat on its Security Council. The UN is the (supposed) forum for handling problems of this nature. Yes, we could construct an alternative "League of Democracies" as John McCain (!) had suggested, in part to deal with global warming and other multilateral problems where the non-democracies won't cooperate. I don't favor this change but if we are going to do it we need to realize how radical a foreign policy step it would be and how Russia would respond as well.
One lesson I take from Krugman's piece is just how thin support for multilateralism really is.
I do understand the basic instinct of "this problem is really bad so we must do something...and now!" I would suggest that we keep in mind the less obvious, but no less important intuition: "this problem is really bad and that means a lot of what we are tempted to do could make it even worse."
Posted by Tyler Cowen on May 15, 2009 at 10:06 AM in Economics | Permalink
Comments
I agree with most of this post, but I'm puzzled by this statement:
"Last I checked China was funding a big chunk of our government's debt. Confronting them would have to be bundled with a regime of extreme fiscal conservatism"
If China chose not to buy our government debt, someone else would buy it. We might have to raise the interest rate. But that increase might be small. If the total amount of global investment remained constant, it seems unlikely that a shift of Chinese savings from one "riskless" investment to another would have a significant impact.
Posted by: John Dewey at May 15, 2009 10:20:46 AM
I think it is deeply unfair to target nations like China that on a per capita basis emit far less carbon than the United States and other first world nations. It isn't really even fair to do this on an annual basis as the United States and Europe have emitted huge amounts of carbon for much longer than China, India, or other industrialized nations have. Note this is not an argument for inaction on the part of the United States or China but I think any punitive action against people who are far less responsible for global warming and enjoyed far less of the benefits that come from ignoring or being unaware of global warming is morally objectionable.
Posted by: Michael Foody at May 15, 2009 10:27:53 AM
We cannot credibly penalize the Chinese until we solve our own pollution problem. Even under Obama's proposed policies, in their purer forms, that is at best decades away. In the meantime, what is it that is really being advocated? Non-credible threats?
Your decades seem to come from the moment that CO2 exhaust in the West will be low. I would say that the pressure on China will start once the West starts significantly lowering (compared to a baseline growth), not when that process is finished.
Point 5., the process can be politicized, seems like an excellent reason for China itself to start its own CO2 reduction scheme. A carbon import tax is only inevitable if China doesn't start a CO2 lowering program while the West does.
If China does a significant amount of work to lower CO2, an import tax might not be needed.
Posted by: Zamfir at May 15, 2009 10:30:33 AM
I don't think you read Krugman's piece carefully.
"4. We cannot credibly penalize the Chinese until we solve our own pollution problem."
But Krugman acknowledges this and explicitly mentioned the need to curb pollution in the US and the importance of having a government in power that recognizes the threat of climate change.
"6. Last I checked there was something called the United Nations and China sat on its Security Council. The UN is the (supposed) forum for handling problems of this nature. Yes, we could construct an alternative "League of Democracies" as John McCain (!) had suggested, in part to deal with global warming and other multilateral problems where the non-democracies won't cooperate. I don't favor this change but if we are going to do it we need to realize how radical a foreign policy step it would be and how Russia would respond as well. "
You do not need a UN Security Council resolution to pass tariff on specific goods. Would it violate WTO rules? Probably. But that just highlights the need for the WTO to incorporate the issue of climate change in global trade.
Posted by: SN at May 15, 2009 10:37:28 AM
Your whole blog revolves around the theme that people respond to incentives.
If people whether Chinese or American or whatever have no direct incentive (like minimizing a tax) to reduce carbon production, it won't happen. If it doesn't happen, the scientists tell us the consequences will be catastrophic. You seem to think that the enormous and very real environmental and economic consequences of large increases in average global temperatures ought to be less of a concern than offending delicate Chinese opinion because they're funding our debt. Keeping in mind your rather obvious "no less important intuition", I don't understand what you propose as an alternative to a carbon tax or tariff. It sounds like your alternative is to just do whatever our Chinese creditors want us to do on this issue (no tax, no tariff), in part because you are afraid of them. Correct me if I'm wrong.
Posted by: JDM at May 15, 2009 10:38:36 AM
4. We cannot credibly penalize the Chinese until we solve our own pollution problem. Even under Obama's proposed policies, in their purer forms, that is at best decades away. In the meantime, what is it that is really being advocated? Non-credible threats?
You're using Krugman as an palatable (for your readership) whipping boy. Your point #4 above is basically a restatement of Krugman's thesis: As the west confronts the problem, carbon usage will shift off-shore and the west will try to reduce off-shore carbon production. Krugman isn't advocating any particular action viz a viz China. He's describing the forces that are beginning to pressure China to reduce carbon emmissions, and his description is accurate.
I think your points are accurate, but they are also not very interesting: They are either obvious (China is powerful--be careful!) or typical libertarian grousing about how the world *should* work (tarriffs shouldn't be polluted by politics). And the idea that the UN is anything but one of many venues for international negotiation is also a little...limiting.
Posted by: MostlyAPragmatist at May 15, 2009 10:50:30 AM
We made money polluting a lot, and China is now starting to make money polluting a lot. But now pollution needs to be stopped. So China won't get as many "fat" years as the US did. That seems unfair.
So logically, international policy should be guided by the notion of a "retroactive carbon cap-and-trade" which simulates the US buying permits for all of its "fat" years of already-emitted pollution.
The simplest way to simulate retroactive global cap-and-trade is to pay China billions and billions of dollars to institute cap and trade.
So shouldn't we just do that?
Posted by: mk at May 15, 2009 11:03:03 AM
if the consequences are going to be so dire, why do we have to convince anyone to do anything? most people are big on self preservation. if the estimated harm from the estimated consequences of warming are not greater than the current benefit of "polluting" (CO2 as pollutant is kind of funny (try to convince the plants of this)), then people rightly will keep on polluting. doesn't the need to coerce give you your answer? (yes, i've read the firm, mkt, etc.)
Posted by: dj superflat at May 15, 2009 11:08:44 AM
This is the worst post you have ever had. Krugman is saying that, if the rest of the world is spending big bucks to control carbon emissions, but China's emissions are growing at a rate that overwhelms the rest of the world, and if it is a global issue, then China needs to be a part of the global solution. Otherwise, why should the rest of the world spend the big bucks on a problem that cannot be solved alone? It is the Tragedy of the Commons that you argue against....unless you really are a global warming denialist, which is fine, but would have to be admitted to be a valid defense.
Posted by: willis at May 15, 2009 11:21:55 AM
This is a classic collective action problem. In terms of carbon emissions, the earth is a commons, and we face a very standard commons problem.
But research consistently shows that direct regulation is not the best solution to such problems. Krugman takes the standard economist's (non-public choice economist, that is) stance that "it's a market failure, ergo coercive government action is the solution." If he only would take the time to understand public choice theory better, he might recognize the shallowness of this prescription.
Posted by: James Hanley at May 15, 2009 11:25:35 AM
I am sometimes appaled by the international economic diplomacy of some economists including Krugman. Once is a currency problem, then is treasuries now is pollution. This is deperate international diplomacy!!! It reminds me few years ago when we used to tell Brazil not to cut Amazonia because we, US and Europe, need it for our oxygen.
“From a humanist perspective...”
“As a Brazilian I would always argue against internationalizing the Amazon Rain Forest. Even though our government has not given this patrimony the care that it deserves, it is still ours. As a humanist who fears the risks posed by the environmental degradation the Amazon is suffering, I could imagine its internationalization, just as I could imagine the internationalization of everything else of importance to humanity.
If, from a humanist perspective, the Amazon must be internationalized, we should also internationalize the world’s petroleum reserves. Oil is as important for the well being of humanity as the Amazon is for our future. The owners of the reserves, however, feel that they have the right to increase or decrease the amount of oil production, as well as increase or lower the price per barrel. The wealthy of the world feel they have the right to burn up this immense patrimony of humanity.
In much the same way, the wealthy countries’ financial capital should be internationalized. Since the Amazon Rain Forest is a reserve for all human beings, no owner or country must be allowed to burn it up. The burning of the Amazon is as serious a problem as the unemployment caused by the arbitrary decisions made by global speculators. We cannot permit the use of financial reserves to burn entire countries in the frenzy of speculation.
“Let’s internationalize all the world’s children as patrimony of humanity”
Before we internationalize the Amazon, I would like to see the internationalization of all the world’s great museums. The Louvre should not belong merely to France. The world’s museums are guardians of the most beautiful pieces of art produced by the human genius. We cannot let this cultural patrimony, like the natural patrimony of the Amazon, be manipulated and destroyed by the whims of an owner or a country. A short time ago, a Japanese millionaire decided to be buried with a painting by a great artist. That painting should have been internationalized before this could happen.
The United Nations is holding the Millennium Summit parallel to this meeting, but some Presidents ohad difficulties attending due to U.S. border-crossing constraints. Because of this, I think that New York, as the headquarters of the United Nations, should be internationalized. At least Manhattan should belong to all humanity, as should Paris, Venice, Rome, London, Río de Janeiro, Brasilia, Recife... Each city, with its unique beauty and its history, should belong to the entire world, to all of humanity.
If the United States wants to internationalize the Amazon Rain Forest to minimize the risk of leaving it in the hands of Brazilians, we should internationalize its nuclear arsenals, if only because the country has already demonstrated it is capable of using these arms, causing destruction thousands of times greater than the deplorable burnings done in the forests of Brazil.
In their debates, the US presidential candidates have defended the idea of internationalizing the world’s forest reserves in exchange for debt relief. We should begin by using this debt to guarantee that each child in the world has the opportunity to go to school. We should internationalize the children, treating them, all of them, no matter their country of birth, as patrimony that deserves to be cared for by the entire world. Even more than the Amazon deserves to be cared for. When the world’s leaders begin to treat the poor children of the world as a patrimony of humanity, they will not let them work when they should be studying, die when they should be living.
As a humanist, I agree to defend the internationalization of the world. But, as long as the world treats me as a Brazilian, I will fight for the Amazonia to remain ours. Ours alone.”
Do we now want to de-internationalize China?
Posted by: M.G. in Progress at May 15, 2009 11:28:50 AM
If we don't threaten tariffs, China will do too little too late. Therefore we must threaten tariffs.
We can try to compensate them somehow, but I see no alternative to threatening tariffs.
Posted by: Michael Bishop at May 15, 2009 11:33:35 AM
"As the United States and other advanced countries finally move to confront climate change, they will also be morally empowered to confront those nations that refuse to act."
I am a humble amateur economist, but this is the second occasion that I have seen Krugman make an appeal to his sense (described as "our" sense) of morality as a justification for public policy. What moral principle is he referring to? Why isn't China "morally empowered" to use the most affordable energy source to raise the standard of living for hundreds of millions of poor? Maybe my highest moral good is freedom so China should have economic freedom to do what they want to.
As a humble climatologist, I ask, is the debate on man made global warming really over? Is it conclusive that carbon emissions are threatening irreversible apocalyptic climate change? I have many reasons to think not.
Posted by: Rafi at May 15, 2009 11:33:54 AM
All this is why you don't frame the tax as a punitive measure against countries that don't have a carbon tax of their own: you do it VAT style, wherein you tax imports at the same rate even as you tax domestic production, regardless of whether the country of origin has a carbon tax, but the importer gets to deduct whatever part of the tax they've already paid to a foreign government.
Posted by: Cyrus at May 15, 2009 11:34:55 AM
Amusingly, both left and right only pay tribute to multilateralism when their "allies" conveniently support the positions that they themselves are pushing.
And penalizing an entire country exporting a spectrum of goods is simply ludicrous and should be dismissed as such.
It is striking that Krugman appears to believe global warming is a "moral" issue, not a pragmatic one of cost maximization. Somehow I don't think this air of superiority is going to win many international friends, except for those who already agree with you.
Posted by: PeterW at May 15, 2009 11:38:12 AM
willis: "unless you really are a global warming denialist"
What exactly is a "global warming denialist"? Is it:
1. one who is unconvinced that the globe is warming?
2. one who is unconvinced that a warming globe will be a disaster for humankind?
3. one who is unconvinced that human activity is the chief cause for a warming globe?
4. one who is unconvinced that actions being proposed to stop global warming will be successful?
5. one who is unconvinced that the value in stopping global warming is worth the clear economic costs of doing so?
To accept the "necessity" of cap and trade or carbon taxes, one would have to be convinced of all the points above. When global warming zealots plead their cause, they usually claim that the first four points have been settled - or that a consensus exists among scientists on all those points. Problem is, there is no such consensus on all four points. Furthermore, most global warming zealots simply ignore the 5th point.
Posted by: John Dewey at May 15, 2009 11:51:49 AM
Rafi - agreed.
Tyler, by using the word 'denier', seems to admit 'global warming' is a religion. Being a skeptic used to be part of being a scientist.
I personally am open to global warming, but co2 as a cause needs to go much further before being taken seriously.
Even the EPA is not convinced.
http://hotair.com/archives/2009/05/12/video-epa-memo-says-greenhouse-effect-not-proven/
Posted by: Tom at May 15, 2009 11:59:50 AM
I am a global warming denialist. It should be obvious to everyone it is about politics rather than science. I guess in 1000 AD I would be a flat earth denialist, and in 1500 I would be the earth is the center of the universe denialist.
Gore is a flim/flam man, unwilling to debate ANY reputable scientist about his "scientific conclusions". Cap and Trade or Carbon Credits are right out of the "indulgences" of the Vatican to pay for St. Peters Cathedral. And the indulgence guarentees a spot in heaven denier was Martin Luther.
Posted by: Wayne at May 15, 2009 12:07:05 PM
John Dewey: denialist is somebody who is still looking for a consensus as an excuse to do nothing and care less. The more points you put the lesser consensus you get, it's obvious. It's verys simple just accept the polluter pays principle, but do not ask China to do what we do not do. That's patronizing...
Posted by: M.G. in Progress at May 15, 2009 12:10:20 PM
China does not agree that Hongkong is a tax heaven, then HongKong is not. China is not powerful enough to achieve projects that they want in the international community, but it is powerful enough to stop those they don't want.
It's funny to see a Nobel prize winner utter this kind of nonsense.
Posted by: Ivan at May 15, 2009 12:21:15 PM
in Progress: "denialist is somebody who is still looking for a consensus as an excuse to do nothing and care less."
If only 10% or 20% of scientists are convinced that global warming will be catastrophic to mankind, why should we now implement a carbon tax? We should not need "excuses" to restrain from implemeting a massive new tax. Rather, before implementing a massive new tax, we should need something as close as proof as we can get that the tax is needed and that the tax will accomplish its objectives. The burden proof should be on those who wish to tax, not on those who oppose the tax,
Posted by: John Dewey at May 15, 2009 12:23:29 PM
Negative externalities are the elephant in the room of all economic discussions, and they sure are causing all kinds of cognitive dissonance for Tyler (and Wayne!). But that's what Krugman is addressing. He's not suggesting political confrontation, and I don't even think he's suggesting a carbon tax.
I think he is saying "somebody has to pay for this problem" in the metaphorical sense. And ultimately he means *everybody* will pay in misery. That is Krugman's M.O.... face in hands despair over human self-destruction. It's exhausting, though he's got a point. But it's never translatable to economic policy, and that is why he doesn't work in government.
Posted by: . at May 15, 2009 12:35:54 PM
I bet a more democratic China would also be less environmentally responsible. Just a hunch.
Posted by: Hu Kebi at May 15, 2009 12:38:36 PM
Dewey:
Problem is, there is no such consensus on all four points. Furthermore, most global warming zealots simply ignore the 5th point.
Unless you categorize oil company PR shills and their ilk as scientists, there is consensus on points 1-3. Granted, Point 4 is slightly more of an unknown (and only slightly), but why should that matter? I suppose inaction is excusable if you're sitting around waiting for the rapture.
And those most convinced by point 5 are the worst free market fundamentalists suffering from the worst case of the NIMBYs. Unless you've also gone hook, line & sinker for oil/energy concerns' propaganda, anthropogenic atmospheric carbon comes from nonrenewable resources. We're going to run out. We can take this supposed economic hit now, or we can take it later.
Posted by: JeffJ at May 15, 2009 12:39:01 PM
jeffJ: "there is consensus on points 1-3."
Please provide a link that provides clear evidence of the scientific consensus on point 2, that "a warming globe will be a disaster for humankind"
Posted by: John Dewey at May 15, 2009 12:45:50 PM
